In this latest edition of our OM text, Jay and I focused on Frito-Lay, including five new video case studies on topics from manufacturing 
strategy, to SPC, to sustainability, to inventory control, to maintenance. We picked the massive company because it made a product line that every student could relate to.
So The Wall Street Journal’s article (March 24,2011) on Frito-Lay’s attempts to retool its product line (Ch.5) to focus on “natural ingredients” was eye-catching. My family and I had consumed probably a 100 large bags of chips during our company research and filming time– a far cry from our normal organic-only household routine.
In a move to make half its snacks with only natural ingredients by the end of 2011, Frito-Lay is gambling that: (1) customers really do want to eat only healthy snacks, (2) retooling doesn’t end up making the products “taste like cardboard”, and (3) the 35% higher ingredient costs will not drive prices too high. Under pressure from the FDA to reduce sodium in the chips, the company has done so (by 25%), but in a very clever way so the taste buds will not know about it. (The secret was to cut salt crystals differently so they remain on the chip’s surface, closer to the tongue, instead of falling into the chip’s recesses).
The firm is also saying goodbye to MSG and 3 dozen other artificial ingredients, and eliminating trans fats. (Its baked chips, by the way, are tasty and have much reduced saturated fats, so I do sneak them into the shopping cart now and then).
The “all-natural” market represents about 20% of the $15 billion in annual US snack sales and is growing rapidly at 14% a year.
Discussion questions:
1. How does this new strategy impact the operations function?
2. How can the “house of quality” (QFD) be used?
3. How does this fit into Frito-Lay’s “green” strategy (see Ch.7).